EU Slams Intel with Record $1.45 Billion Fine in Antitrust Case; Intel Remains Defiant; What will U.S. Courts Do?

The European Union made a huge statement today by fining Intel $1.45 billion for abusing its dominance in the computer chip market to exclude its only serious rival, Advanced Micro Devices.

This is third significant legal body to rule that Intel has violated anti-trust law. In 2008, the Korea Fair Trade Commission issued a $25.4 million fine against Intel saying that it abused its dominant position. In addition to a fine, the KFTC ordered Intel to stop the practice of offering payments to PC makers conditioned upon them not doing business with AMD. Intel is in the process of appealing the ruling.

In March of 2005, Intel agreed to stop using similar practices in Japan after the Japan Fair Trade Commission held that rebates and refunds paid to Japanese PC makers when they bought all or most of their chips exclusively from Intel were anticompetitive practices.

The European Union’s competition commissioner, Neelie Kroes, reached a similar conclusion, saying Intel had “used illegal anticompetitive practices to exclude its only competitor and reduce consumers’ choice — and the whole story is about consumers. ” She said Intel’s practices had “undermined innovation.”

Intel CEO Paul Ottelini said the decision was wrong in a strongly-worded statement and that the chip giant would appeal the decision. “We believe the decision is wrong and ignores the reality of a highly competitive microprocessor marketplace – characterized by constant innovation, improved product performance and lower prices,” said Ottelini. “There has been absolutely zero harm to consumers.”

Now, the big question is what U.S. courts will have to say about these issues. AMD’s suit against Intel has been pushed back to 2010. In addition, the U.S. Federal Trade Commission (FTC) and New York Attorney General’s office are investigating Intel for abuse of its monopoly position.

Anti-trust law varies from country to country but the fact that high legal authorities in three of the world’s largest markets–Japan, Korea and now the EU–have ruled against Intel can only mean that the chances of Intel losing in the U.S. have gone up. Moreover, there’s a new sheriff in town, and the Obama Administration just warned corporate America that the government will more aggressively investigate big firms that hurt smaller competitors, contending that lax enforcement by the Bush administration contributed to the current economic troubles.

AMD applauded the EU decision in a statement. “Today’s ruling is an important step toward establishing a truly competitive market,” said Dirk Meyer, AMD president and CEO. “AMD has consistently been a technology innovation leader and we are looking forward to the move from a world in which Intel ruled, to one which is ruled by customers.”

When I wrote a long story about this issue back in 2005, after AMD filed suit against Intel, it was clear that Intel had a big problem on its hand. The legal term for the problem is “exclusionary pricing.” It probably wouldn’t be illegal for Intel to offer rebates and discounts to companies to purchase its own chips. As I wrote back in 2005, the problem arises when Intel uses “hundreds of millions of dollars in rebates, discounts, and marketing funds to drive computer makers, distributors, and retailers into exclusive or near-exclusive deals with Intel.”

“In one case, AMD says Toshiba (TOSBF ) stopped using AMD chips in 2001 because doing business with the chipmaker would “jeopardize Intel market development funds estimated to be worth $25 million to $30 million per quarter.” In 2002, Hewlett-Packard (HPQ ) said it would be willing to use AMD chips only if AMD paid the computer maker $25 million each quarter to compensate for the expected retaliation from Intel, the suit contends.”

Interestingly, in his statement Ottelini doesn’t address exclusionary pricing, but only says that “we can discount our products to compete in a highly competitive marketplace.”

EC Ruling: Statement by Intel President and CEO Paul Otellini

SANTA CLARA, Calif., May 13, 2009 – Paul Otellini, Intel Corporation president and CEO today issued the following statement regarding the European Commission decision on Intel’s business practices:

“Intel takes strong exception to this decision. We believe the decision is wrong and ignores the reality of a highly competitive microprocessor marketplace – characterized by constant innovation, improved product performance and lower prices. There has been absolutely zero harm to consumers. Intel will appeal.”

“We do not believe our practices violated European law. The natural result of a competitive market with only two major suppliers is that when one company wins sales, the other does not. The Directorate General for Competition of the Commission ignored or refused to obtain significant evidence that contradicts the assertions in this decision. We believe this evidence shows that when companies perform well the market rewards them, when they don’t perform the market acts accordingly.”

“Intel never sells products below cost. We have however, consistently invested in innovation, in manufacturing and in developing leadership technology. The result is that we can discount our products to compete in a highly competitive marketplace, passing along to consumers everywhere the efficiencies of being the world’s leading volume manufacturer of microprocessors.”

“Despite our strongly held views, as we go through the appeals process we plan to work with the Commission to ensure we’re in compliance with their decision. Finally, there should be no doubt whatsoever that Intel will continue to invest in the products and technologies that provide Europe and the rest of the world the industry’s best performing processors at lower prices.”